Build a house as investment property

Discussion in 'Investment Strategy' started by iCodeEveryday, 19th Nov, 2019.

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  1. iCodeEveryday

    iCodeEveryday New Member

    Joined:
    19th Nov, 2019
    Posts:
    3
    Location:
    Victoria
    I am new to property investment and seeking advice.

    Purchased land from a Property Developer in Armstrong Creek, Victoria and the land is expected to titled in Q3 2020.

    I am unable to figure out what's the best strategy. Please advise.

    Option 01: Lock in a Home Builder now, sign contract and build the house immediately after the land is titled.
    - Home Builders will only lock the price for 12 months
    - Home Builders are pushing me to sign contract now because they say they review their prices quarterly and it keep increasing

    Pros Option 01:
    - I will lock price for house build now and won`t be hit by the quarterly increase.

    Cons Option 01:
    - Worried if I build immediately after the land is titled, I will have trouble finding tenant. Not sure tenant would like to rent a house where neighbours are also building their house or vacant land around. They might feel isolated.
    - If I don't find tenant, I would have to cover the full mortgage cost approx $1800/month. No rental income
    - Not sure when neighbours will start building
    - Thieves in new estate. House will be unoccupied with no neighbours. They may break-in.
    - If the land title is delayed, I will have to pay the builder penalty fees of $400/month

    Option 02: Wait for land to title and start the build around 11-12 months after titled. As per the land contract, I have to start building within 12 months and complete within 24 months.

    Pros Option 02:
    - Neighbours will have started building or completed their build
    - Higher probability to find a tenant.
    - More time to save.

    Cons Option 02:
    - Cost of building house would have increased. The house could potentially increase by up to 20K
    - When the land titles, I will have to pay the mortgage cost on the land portion approx $400/month. Land will be there for 12 months and not generate income.

    Please advise or any other strategy.
     
  2. datageek

    datageek Well-Known Member

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    Australia
    I find it hard to believe that the build cost will increase by $20k in a year. Certainly not due to rising costs of labour or building materials.

    I find it a lot easier to believe that titling will be delayed a year.

    By waiting you can see how other developments pan out in the area and decide then what to do. You may choose to sell the land if, for example, oversupply becomes an issue.
     
    MikeyBallarat likes this.
  3. Westie

    Westie Well-Known Member

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    Location:
    Melbourne
    Welcome to the forum!

    This scenario should've been posed to PC before you put the deposit down. But anyway.. What estate is it in AC? I know the area fairly well (got an IP there).

    The builder's pressuring you so they can lock you in to a contract with them. There's no hurry. There are dozens of them out there that you can choose from. Don't get suckered in to signing.

    I can tell you from experience you can expect your block's title delayed by 2-3 months at least (depending on who the developer is, how busy council is blah blah). If the builder's going to hit you with $400/month for the delay, it'd be better to sign up with them a bit later. There's no hurry. If it's Q3 2020, there's every likelihood it might get titled in Q1 2021, you shouldn't be surprised.
     
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  4. iCodeEveryday

    iCodeEveryday New Member

    Joined:
    19th Nov, 2019
    Posts:
    3
    Location:
    Victoria
    Thank you for your input.
    This is in Ashbury Estate in Armstrong Creek.

    Yes, I checked with a few builders and they all have more or less the same sales pitch. I need to sign up now to lock in the price which will increase.

    Would you advise building immediately after the land is titled or wait a bit for other houses to be built? I am concerned about finding tenants if I build immediately.
     
  5. iCodeEveryday

    iCodeEveryday New Member

    Joined:
    19th Nov, 2019
    Posts:
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    Location:
    Victoria
    Thank you.

    I am not sure if the information from this blog is reliable. There also seems to be a typo about the date.

    "The average cost to build a house in Australia has increased 74.8% since 2003-2004, with the ACT experiencing the greatest increase in costs at 8% per year and Queensland having the smallest increase at just 4.5% a year. "
    The cost to build a house in 2019 (price per metre & state comparison)
     
  6. Westminster

    Westminster Tigress at Tiger Developments Business Member

    Joined:
    3rd Jun, 2015
    Posts:
    10,004
    Location:
    Perth
    There probably isn't any true answer. If you build first then you are competing against less others for tenants than if you wait a year and build. Once everyone else has built there might be a number of IPs that are available to rent and you will need to compete against those. Building early on in the process might get you tenants who are also building in the estate and want to live nearby during construction.

    I agree with the others that there is no need to sign up with a builder now. What happens if they go bust or you lose your job or you can't get construction finance when the blocks are titled. You need to remain flexible and independant.
     
  7. Westie

    Westie Well-Known Member

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    Location:
    Melbourne
    That's one of the newer estates in the AC area, less desirable to live in than say the Villawood one and maybe Warralily. Have a word with some of the REA's in the area, see how rentals fare in the your estate. What's your total build cost?
     
  8. Lauren350

    Lauren350 Active Member

    Joined:
    11th Feb, 2019
    Posts:
    40
    Location:
    Geelong
    I agree with @Westie ...I would contact Armstrong Real Estate, who manage a lot of the rentals in the estates and get an update on the current rental market.
    I would base the decision regarding when to begin building around your overall financial situation and goals, rather than builder cost increases or neighbour build times.
    By the time your block titles, there will be a number of new amenities opening in the area, including Armstrong Creek town centre / shopping precinct (currently under construction) and several new schools including Armstrong Creek West Primary School (opening Term 1 2020), etc. Ashbury Estate is within easy access to these, so will likely become more desirable.
     
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  9. Nicole Gray

    Nicole Gray New Member

    Joined:
    27th Feb, 2021
    Posts:
    1
    Location:
    Victoria
    Can I please ask how you went/ how you’re going with your process? We are due to sign our contract for land in the estate later this week but our conveyancer has raised some concerns with the deal. Wondering how you found it... thanks
     

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